Canstar issue -- Allahabad HC summons Sebi chief

Canstar issue -- Allahabad HC summons Sebi chief
ENS ECONOMIC BUREAU

MUMBAI, FEB 21: Securities and Exchange Board of India (Sebi) chairman D R Mehta has been issued summons by the Allahabad High Court to show cause as to why the court's directive on the Canstar scheme of Canbank Mutual Fund has not yet been carried out.

Justice Bhanwar Singh of the Lucknow bench of the Allahabad High Court issued the summons after hearing arguments of Sandeep Dixit, counsel for the petitioner Midas Touch Investors Association.

Dixit argued that Sebi has failed to carry out the specific directions given by the High Court in its earlier writ petition regarding Canstar scheme of Canbank Mutual Fund and thus committed contempt of the High Court. The earlier directive was issued on febraury 2, 2000. He drew the attention of the court that Sebi had taken the plea, in the earlier writ petition, that it had written to Canbank Mutual Fund and other respondents asking them why the lesser amount, than assured, of Rs 23 was paid to the Canstar holders in 1997 and the matter was under its active consideration. The court had disposed of the writ directing Sebi to decide the issues as the matter was of "public importance".

The court has fixed April 4 as the next date of hearing. During the pendency of Midas Touch writ, Canara Bank had made a payment of Rs 974 crore to 2 lakh Canstarholders in 1997. This was Rs 426 crore more than the amount proposed by Canbank Mutual Fund. Midas had argued, through a supplementary affidavit, that the unitholders accepted the offer of Canara Bank under duress, as Canbank Mutual Fund had refused to encash the Canstar in violation of the terms of the scheme.

Further, the payment of Rs 23 made by Canara bank was lower than the assured and committed price of Rs 26/50. Canara Bank/Canbank Mutual Fund should pay the difference of Rs 3/50 payable to 2 lakh unitholders, aggregating Rs 141 crore, Midas had contended. Sebi had accepted Midas stand. On this, the High Court had directed the Sebi to decide all the issues raised in the writ petition.

The High Court had also directed Sebi to take action against the trustees under the Sebi Act and the Mutual Funds regulations framed under it. Failure of trustees to fulfil its obligations had resulted, besides others, in the national exchequer losing Rs 600 crore, a sum which the Central Government was forced to pay to Canara Bank, to enable it to make payment to Canstar holders in 1997.

Virendra Jain, Secretary of Midas Touch, said that besides the payment of difference, the question of penal action against the trustees under the Sebi Act, for breach of trust, raised by Midas in the original petition, is equally important. It is unfortunate, said Jain, that even specific directions of the court are not being carried out.

Earlier, the same thing happened in the "vanishing" companies order given by the Allahabad High Court in March 1999. "Now, we had written to the Prime Minister and demanded a CBI inquiry in the matter to fix accountability of officials of Sebi, stock exchanges etc., as without their dereliction of duty such a massive scam could not have taken place. A probe by CBI would bring out whether this was due to callousness or connivance," Jain said.